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Even in a world of cheap oil, India faces an energy crisis. It is highly dependent on imports, its industries suffer from an unreliable power supply, and hundreds of millions of citizens have limited access to electricity. To sustain 8% gross domestic product (GDP) growth and continue to bring its people out of poverty, India needs to fix its energy crisis.

India has always faced an energy challenge, which only grows larger. It is home to 17% of the world’s population but has less than 1% of its oil and gas reserves, and just 10% of its coal reserves. As demand doubles in the coming decade, imports could rise from about 30% of primary energy demand today to over 50% by 2030, making India one of the most energy-dependent major economies in the world. Even at current prices, every additional million tonnes of imported oil raises the current account deficit by half a billion dollars.

India cannot expect to experience the shale oil and gas bonanza that has turned the US into a net energy exporter, but it could have significant opportunities in unconventional gas. The US Energy Information Administration estimates that India has 63 trillion cubic feet (ft) of shale gas resources and 70 trillion cubic ft of coal-bed methane, and could produce more than 20 million cubic meters a day of natural gas in 2025 by tapping these resources. While estimates of unconventional resources are quite uncertain (exploration is still at an early stage), it is clear that a large-scale effort to map, assess, drill and produce unconventional and difficult resources should be a top priority.

This will require strong technology inputs such as hydraulic multi-stage fracking. Concerns about the water use involved in fracking can be addressed with developments in non-water fracking methods and the use of cost-efficient water treatment technologies. In addition, there is great promise for India in other challenging reservoirs, including basement and ultra-deep water. Finding and producing all of these resources will need new technology.

Renewables are land-intensive, but in the medium to long term, constraints of limited land availability could be overcome through offshore options. Japan opened the world’s first offshore solar plant, in Kagoshima prefecture in 2013. Seaweed biomass may one day replace land-based biofuels.

Advancement in energy storage technologies will reshape the global transportation sector in the coming decade. The McKinsey Global Institute estimates that at least 40% of vehicles sold globally in 2025 could be all-electric or hybrid. But advanced battery technology will also benefit millions of poor households, providing a way to store power from renewable sources.

Currently, adding storage typically doubles or triples the total cost of a solar solution.

But as prices for advanced battery storage technology fall, rural adoption will rise. In some parts of India, households are renting kits with a small solar collector and battery that provides enough electricity to charge cellphones and power a lamp and a radio. Globally, such innovations could help bring electricity to an estimated 600 million people who now are not connected.

Finally, energy efficiency through smart grids promises savings and better utilization of existing generation capacity. These systems gather real-time data about energy use and monitor surges, outages, and theft of power. Indian power companies have already shown that they can reduce transmission and distribution losses—in some cases from over 50% to about 11%. Smart grids can help accelerate such initiatives.

India can also reduce the energy needed to support economic growth by promoting energy efficiency technologies across buildings, lighting, appliances, water pumps, power plants, and transportation equipment. Many of these technologies could help reduce the energy intensity of India’s GDP growth by up to 1 percentage point per year.

To take advantage of the opportunities we describe, India needs to develop technology ecosystems across the energy sector. The government needs to simplify approvals and frame policies for promoting research into energy technologies.

Unconventional oil and gas exploration, for example, will need investment in high-resolution imaging, geo-mechanical studies, lean drilling and fracking.

Policymakers need to work with electricity companies and technology vendors to establish common data standards for smart meters and other smart-grid devices, and promote or mandate their acceptance amongst consumers. The government, along with the private sector, can invest in global-scale poly-silicon manufacturing capabilities to reduce dependence on imported solar panels.

Commercial mechanisms to allow purchase of renewable power and financing of energy storage are essential. State governments can make state-owned land available for solar installations and import duties can be rationalised for a host of energy-related technologies.

All of this will require a national commitment to developing local energy technology ecosystems comprising innovation and research, technology services, local manufacturing and customer support for innovation. Norway, for example, has created a number of global leading oilfield technology and service companies as a result of its bold vision to optimally develop its North Sea reserves. India too can aim to create world-class energy technology ecosystems in India focused on difficult oil and gas, renewables and energy efficiency.

Anu Madgavkar is a senior fellow at the McKinsey Global Institute and based in the Mumbai office; Vipul Tuli is a director of McKinsey and Co. and is based in New Delhi.

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